Week of March 29, 2021 | Issue 23
Ryan Ruddock, & Timothy Botros; Illicit Finance and Economic Threats
Several individuals have been charged and sentenced for complex financial schemes
Date: Wednesday, March 31, 2021
Location: Pittsburgh, Pennsylvania, United States of America
Parties involved: US Department of Justice (DOJ); French law enforcement; Tal Prihar; Michael Phan
The event: On Wednesday, March 31, 2021, Tal Prihar, the owner of DeepDotWeb--a website that facilitates access to the dark web--pleaded guilty to money laundering charges. Prihar received $8.4 million worth of Bitcoin payments for guiding customer traffic towards illicit websites and marketplaces that sold guns, hacking tools, and heroin. The websites were not indexed by search engines and Prihar provided links so that the buyers could gain direct access. Prihar operated the illicit website along with his co-conspirator Michael Phan. If convicted, Prihar faces 20 years in prison.
The sentencing indicates that US law enforcement is committed to pursuing individuals who are facilitating the sale and purchase of illicit goods on the dark web. This is a positive sign because it may cause individuals with similar aspirations as Tal Prihar to be deterred from engaging in illicit activities.
Criminal entrepreneurs on the dark web are likely to see their customer base dissipate if individuals acting as illicit market referees are concerned about facing the prospect of decades in prison. A lack of referrals is likely to lead to a loss in revenue for the owners of illicit marketplaces.
The incident highlights a predictable moral hazard that exists for dark web websites and application administrators like Mr. Prihar, whereas, the propensity and temptation to help facilitate financial crimes is enhanced by easy access to these domains’ illicit marketplaces along with in-depth know-how of the dark web. Likewise, the incident also reaffirms recent concerns that have been raised by US officials regarding an alarming trend with cryptocurrencies being devoted towards helping in the veiling and financing of illicit activities.
Date: Friday, April 2, 2021
Location: Tampa, Florida, US
Parties involved: Federal Bureau of Investigation; Internal Revenue Service; Small Business Administration; Julio Lugo; Rosenide Venant; US Attorney’s Office for the Middle District of Florida
The event: On Friday, April 2, 2021, the US Attorney’s Office in the Middle District of Florida announced that Julio Lugo and Rosenide Venant were charged with $5.8 million USD in COVID relief fraud. The duo submitted 70 fraudulent loan applications in an effort to defraud the Small Business Administration and acquire funds from the Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP). The loan application listed shell companies created by Venant Lugo and their relatives as some of the beneficiaries of the funds, which the couple then spent on luxury items, gambling, and other personal matters.
Lugo is facing up to 45 years in federal prison, while Venant is facing up to a 35-year prison sentence. During the commission of this illicit scheme, Lugo was on supervised probation for a tax fraud scheme that stemmed from 2015. The arrests of COVID relief fraudsters allows the government to ensure that individuals who are in need of financial assistance will not be destitute because of the actions of a few individuals.
Based on the potential profitability for COVID-fraud schemes, it is likely that more individuals have/will commit these kinds of frauds and be charged in the future. The charges send a message to other fraudsters that the government will closely monitor suspicious activities in an effort to find illicit movements of money, and seize ill-gotten assets.
Since the initial days after the inception of the initial CARES Act COVID relief bill, COVID relief fraud cases have been rampant. Earlier this month, a grand jury indicted four additional individuals for alleged involvement in a scheme to submit over 150 fraudulent loan applications seeking over $21.9 million in CARES Act funds. According to the DOJ, its Fraud Section prosecutors have handed charges to more than 100 defendants involved in over 70 CARES Act fraud cases, seizing over $65 million in stolen funds. While involving more people than the Florida case (making it one of organized crime), both cases highlight the large, systemic lengths by which some fraudsters will go in pursuit of much more sizable government aid schemes profits as opposed to merely attempting to commit fraud through a small handful of falsified claims (i.e. a Fort Myers Business case involving an individual making two claims off of a single boating company).
Given the vast scope of COVID relief packages along with the number of convictions surfacing a year since the first CARES Act was enacted on Sunday, March 29, 2020, it can be reasonably assumed that at least several thousand more will be uncovered. The relative ease of committing COVID relief fraud is also a risk factor here as aid is distributed based on necessities by the claimant needed for personal crisis, business overhead costs, and/or other suddenly unpayable expenses.
Date: Wednesday, March 31, 2021
Location: Sydney, Australia
Parties involved: Australian Federal Police
The event: On Wednesday, March 31, 2021, a man from Sydney, Australia was sentenced to 16 months in prison for laundering $43,350 which was illicitly acquired. The unidentified suspect used the personally identifiable information of identity theft victims to facilitate transactions through a cryptocurrency provider. Law enforcement believes that stolen Bitcoin was deposited into the accounts the perpetrator had created. He then withdrew cash from cryptocurrency ATMs. The cryptocurrency provider reported suspicious transactions to law enforcement which led to the conviction and sentencing.
This sentencing and investigation highlight the importance of cryptocurrency platforms in monitoring suspicious activity. Maintaining protocols and communication with federal law enforcement and financial regulators is likely to lead to increased arrests of individuals committing this type of crime.
If more cryptocurrency providers maintain adequate reporting, that has the potential to deter criminals from attempting to engage in cryptocurrency identity theft schemes. It may be perceived as too risky. Criminals may have to work harder to find possible security gaps or areas to exploit.
Cryptocurrency generally has high-level safeguards against theft, but the guarantee is only based on a user’s ability to secure their digital logins and key information. This incident should come as a sign of caution for cryptocurrency wallet owners and customers’ platform companies to better protect themselves against this vulnerability by safe-guarding wallet information and not interacting with unverifiable users online.
Date: Wednesday, March 31, 2021
Location: San Diego, CA, United States of America
Parties involved: Gina Champion-Cain; US Attorney’s Office for the Southern District of California
The event: On Wednesday, March 31, 2021, Gina Champion-Cain, a San Diego businesswoman, was sentenced to 15 years in prison following her guilty plea in June 2020. Champion-Cain committed securities fraud and defrauded investors out of $400 million by committing a Ponzi Scheme. Champion-Cain used deceptive payments to convince her investors that high-interest loans on liquor licenses, if approved, would lead to a profit. Millions of dollars were instead used to finance her restaurant and other retail businesses.
Prosecutors requested that she receive a 12-year sentence, however, the judge ordered her to serve 15 years in prison. The sentence indicates that law enforcement will take these crimes seriously and issue hefty sentences to potentially dissuade other businesspeople from replicating this scheme.
An oft-forgotten form of white-collar crime, the latest replication of the classic Ponzi Scheme may have the potential to compel would-be investors to perform more due diligence with individuals or projects they are seeking to invest in. Risky investing practices on Wall Street and elsewhere are becoming more common and democratized. The prevalence of such crimes can cause prospective investors to place more scrutiny on business deals and require investment managers to provide more proof that they are operating a legitimate investment opportunity.
While a $400 million win for federal prosecutors, the FBI, and the Securities and Exchange Commission, securities fraud and investing scams like these have a long history of causing serious damage to businesses, communities, and entire industries. Once considered one of San Diego’s “most powerful women business leaders,” the downfall of Gina Champion-Cain, her ANI Company, and its 40 companies, will undoubtedly pose a threat to San Diego’s economy due to the incident along with potentially impacting Southern California’s retail investment market.
 DeepDotWeb Administrator Pleads Guilty to Money Laundering Conspiracy, US Department of Justice, March 2021, https://www.justice.gov/opa/pr/deepdotweb-administrator-pleads-guilty-money-laundering-conspiracy
 Davenport Couple Charged With $5.8 Million COVID Relief Fraud, US Department of Justice, March 2021, https://www.justice.gov/usao-mdfl/pr/davenport-couple-charged-58-million-covid-relief-fraud
 Florida couple bilked $5.8M in COVID-19 loans, flaunted cash on Facebook, prosecutors say, Click Orlando, April 2021, https://www.clickorlando.com/news/local/2021/04/02/florida-couple-bilked-58m-in-covid-19-loans-flaunted-cash-on-facebook-prosecutors-say/#//
 Four Additional Members of Los Angeles-Based Fraud Ring Indicted for Exploiting COVID-Relief Programs, Department of Justice, March 2021, https://www.justice.gov/opa/pr/four-additional-members-los-angeles-based-fraud-ring-indicted-exploiting-covid-relief
 Fort Myers Business Owner Convicted At Trial For COVID Relief Fraud, United States Secret Service, March 2021, https://www.secretservice.gov/newsroom/releases/2021/03/fort-myers-business-owner-convicted-trial-covid-relief-fraud
 Sydney man jailed for cryptocurrency money laundering, Mirage News, April 2021, https://www.miragenews.com/sydney-man-jailed-for-cryptocurrency-money-539339
 ‘Mastermind' Behind $400M Ponzi Scheme Gina Champion-Cain Sentenced to 15 Years in Prison, NBC San Diego, March 2021, https://www.nbcsandiego.com/news/local/mastermind-behind-400m-ponzi-scheme-gina-champion-cain-sentenced-to-15-years-in-prison/2564680/
 GINA CHAMPION-CAIN CHARGED WITH SECURITES FRAUD, HAS EAST COUNTY TIES, East County Magazine, September 2019, https://www.eastcountymagazine.org/gina-champion-cain-charged-securites-fraud-has-east-county-ties